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British taxes: a guide to the UK tax system

Are Social Security Taxes Deductible From Taxable Income_ _ Sapling

The British tax system

Tax receipts for the UK totaled approximately £584.5 billion in 2020/21, a decrease of 7.7% from the previous tax year.

Basic UK taxes include income taxes, property taxes, capital gains, UK inheritance taxes, and Value Added Tax (VAT). Many of these are progressive taxes, meaning that those with higher incomes pay a higher rate.

The British fiscal system applies throughout the United Kingdom: England, Scotland (though there are some specific differences owing to Scotland’s unique legal system), Wales, Northern Ireland, and many of the smaller islands around the British coast. Furthermore, it includes oil drilling platforms in British territorial waters, though, notably, it excludes the Channel Islands and the Isle of Man.

One interesting aspect of UK tax is that it treats spouses as separate entities and taxes them as individuals, with the exception of a small allowance for the purpose of income taxes.

Before you can pay taxes in the UK, you need a national insurance number. Furthermore, you may also need to apply for a Skilled Worker visa (formerly Tier 2 visa). Now that the UK has left the EU, this also applies to citizens of the European Economic Area (EEA). The deadline to apply for the free EU Settlement Scheme was 30 June 2021, but there are a few cases in which you can apply after the deadline.

Can you get a refund on VAT?

Tourists and visitors to the UK can shop tax-free during the course of their stay. They are entitled to claim a refund on any VAT paid for goods bought within the country – provided they take these items with them when they leave the UK.

In most cases, the shop or refund company charges you a fee for using tax-free shopping. Such refunds must be claimed by the last day of the third month after the month in which you bought them. These are only available to tourists, visitors, and UK nationals living abroad for at least 12 months.

If you belong to one of these categories, you must be able to prove this to the shop assistant and to customs when you leave the UK by showing your passport, visa, or other documents.

Items ineligible for VAT refunds

Presently, tax-free shopping or VAT refunds do not apply to the following:

  • Services of any kind (for example, hotel bills)
  • Goods that you’ve used, or partly used, in the UK (such as perfume or chocolates)
  • Motor vehicles and boats
  • Goods over £600 in value that will be exported for business purposes (you have to use a form C88 for these)
  • Goods that will be exported as freight and goods that need an export license (except antiques)
  • Unmounted gemstones and bullion
  • Mail-order goods including internet sales

Not all retailers offer tax-free shopping. If you want to claim a VAT refund, you’ll first need to find a shop that does and ask the store for a VAT check or refund, which you’ll need to sign in the presence of the shop assistant. Present this form, together with your purchase receipts, ticket, passport, and boarding card at specified UK customs offices upon your departure; most ports and airports have one.

Once the form has been validated, you can either drop it in a customs post box or take it to a VAT refund office or agency to get your money, either in cash or via a refund to your credit card.

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